A recent survey conducted by Fenwick & West—a global law firm that provides services to high technology and life science clients— analyzed the valuations and terms of venture financings for 128 technology and life science companies headquartered in the greater Silicon Valley/San Francisco Bay Area that reported raising capital in the fourth quarter of 2008. According to Fenwick & West’s (F&W) Fourth Quarter 2008 Silicon Valley Venture Capital Survey, up rounds exceeded down rounds 54% to 33%, with 13% remaining flat during the fourth quarter of 2008—the lowest amount by which up rounds exceeded down rounds since the third quarter of 2004. (Note: An up round is one in which the price per share at which a company sells its stock has increased since its prior financing round. Conversely, a down round is one in which the price per share has declined since a company’s prior financing round.)

“Perhaps more ominously, down rounds increased each month through the quarter, and for December 2008, 45% of all financings were down rounds, compared to 48% up and 7% flat,” explains Barry Kramer, partner in the firm and co-author of the survey. Kramer notes that a breakdown of fourth quarter financings by industry disclosed that Web 2.0/digital media was the strongest industry. When Web 2.0/digital media companies are excluded from the results, up rounds decreased to 46%, down rounds increased to 39%, and 15% of the rounds were flat.

Another F&W survey: The 2008 Life Sciences Venture Capital Valuation Survey, also showed a weakening in valuations in the life sciences venture environment. The survey—based on the venture financings of 81 life sciences companies headquartered in the Silicon Valley/San Francisco Bay Area that reported raising money during calendar year 2008—shows that up rounds outpaced down rounds 59% to 22% for life sciences company financings in 2008, with 19% of the financings flat. "This was a significant decline from both 2007 and 2006 as 79% of the financings were up rounds in both of those years," according to Kramer. "Perhaps more importantly, the percentage of up rounds declined as 2008 progressed, with down rounds exceeding up rounds 39% to 30% with 31% flat in the fourth quarter.